Earnings season continues as America’s two largest commercial banks, Bank of America® and JP Morgan Chase released their earnings statements for Q3. Accounting trickery was prevalent, but notably JP Morgan Chase surpassed Bank of America® to become the largest bank in the United States, as measured both by deposits and assets.
Bank of America® (NYSE: BAC) posted a hefty $6.2 billion profit, or $0.56 per diluted share, a number that takes all outstanding stock options into account; this far exceed’s last year’s Q3 earnings report from the bank, which reported a net loss of $7.3 billion.
Those who have been following the troubled lender might be surprised to see such healthy profits, and they’d be right. Let’s look at where they came from.
- $4.5 billion pretax revenue from “positive fair value adjustments on structured liabilities”
- $3.6 billion pretax revenue from the sale of China Construction Bank
- $1.7 billion pretax revenue from “trading Debit Valuation Adjustments”
- $2.2 billion loss in private equity.
As Zero Hedge points out, the positive fair value assessments and the DVA account for the full $6.2 billion in net profits that the bank is reporting, and they’re not really revenue: they’re accounting “gimmicks” that turn poor bond performance into on-the-book profits. And aside from the sale of China Construction Bank stock, it isn’t totally clear how valuable BofA’s core business was.
Meanwhile, JPMorgan Chase (NYSE: JPM) reported net income of $4.3 billion, or $1.02 per share, roughly equal to their Q3 earnings last year: $4.4 billion. The bank suffered some significant losses on their books this quarter, including $542 million in private equity losses and $1 billion in litigation expenses, “predominantly for mortgage-related matters.”
But that didn’t stop the bank from surpassing Bank of America® as the biggest bank in the country as measured by total assets and total deposits. According to their period end balance sheet, JPMorgan Chase finished Q3 with $2.289 trillion in assets and $1.093 trillion in deposits. Bank of America® posted $2.220 trillion in assets, and $1.041 trillion in deposits. Chase had more in deposits than BofA at the end of the previous quarter, by $10 billion, but still lagged in assets. Now it leads in both.
Bank of America® is slowly whittling down its business to something more streamlined and profitable — not small by any means, but smaller — so now we can look to JPMorgan Chase when we want to shake our fist at large financial institutions.